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Chapter8RecyclableResources:Minerals,Paper,Glass,Etc.8.1IntroductionQuestionstoberesolved:Whatisanefficientamountofrecycling?Willthemarketautomaticallygeneratethisamountintheabsenceofgovernmentintervention?Howdoestheefficientallocationovertimedifferbetweenrecyclableandnon-recyclableresources?8.2AnEfficientAllocationofRecyclableResourcesHowwouldanefficientmarketallocatearecyclabledepletableresource?Intheearliestperiods,reliancewouldgenerallybeexclusivelyonthevirginore,becauseitischeapest.Asmoreconcentratedoresareextracted,theminingindustrywouldturntothelower-gradeoreandtoforeignsourcesforhigher-gradeores.Asthecostsofvirginmaterialsandofwastedisposalrises,theattractivenessofrecyclingisincreasing.8.2AnEfficientAllocationofRecyclableResourcesConsumers,aswellasmanufacturers,playaroleonboththedemandandsupplysideofthemarket.8.2AnEfficientAllocationofRecyclableResourcesOnthedemandside,consumerswouldfindthatproductsdependingexclusivelyonvirginrawmaterialsaresubjecttohigherpricesthanthoserelyingonrecycledmaterials.Then,consumerswouldhaveatendencytoswitchtoproductsmadewiththecheaper,recycledrawmaterials,aslongasqualityisnotadverselyaffected.8.2AnEfficientAllocationofRecyclableResourcesOntheotherhand,aslongasconsumersbearthecostofdisposal,theyhavetheadditionalincentivetoreturntheirusedrecyclableproductstocollectioncenters.Bydoingso,theyavoiddisposalcosts,whileatthesametimereapingfinancialrewardsforsupplyingaproductsomeonewants.8.2AnEfficientAllocationofRecyclableResourcesInmostcasesrecyclingisnotcheap.TransportandprocessingcostsareusuallysignificantAsrecyclingbecomescost-competitive,ratherdramaticchangesoccurinthemanufacturingprocess.Notonlydomanufacturersrelymoreheavilyonrecycledinputs,theyalsobegintodesigntheirproductstofacilitaterecycling.8.2AnEfficientAllocationofRecyclableResourcesHowdoestheefficientallocationofarecyclableresourceovertimecomparewiththatofanonrecyclableresource?Perhapsthemostimportantdifferenceoccursinthetimingoftheswitchpoint.Aslongastheresourcecanberecycledatamarginalcostlowerthanthatofthesubstitute,themarkettendstorelyontherecyclableresourcelongerthanitdoesonanonrecyclableresourcewithanidenticalextractioncostcurve.8.2AnEfficientAllocationofRecyclableResourcesAnefficienteconomicsystemwillorchestrateabalancebetweentheconsumptionofdepletableandrecycledmaterials,betweendisposingofusedproductsandrecycling,andbetweenimportsanddomesticproduction.8.3wasteDisposalandPollutionDamage9.3.1DisposalCostandEfficiency9.3.2TheDisposalDecision9.3.3DisposalCostsandtheScrapMarket9.3.4PublicPolicies9.3.5PollutionDamage8.3.1DisposalCostandEfficiencyBothmarginaldisposalcostsandthepricesofrecycledmaterialsdirectlyaffecttheefficientlevelofrecycling.8.3.2TheDisposalDecisionPotentiallyrecyclablewastecanbedividedintotwotypesofscrap:Oldscrapwhichisrecoveredfromproductsusedbyconsumers.Newscrapwhichiscomposedoftheresidualmaterialsgeneratedduringproduction.8.3.2TheDisposalDecisionThemarketfornewscrapwillworkefficientlyandeffectively.Sincenewscrapneverleavesthefactory,itremainsunderthecompletecontrolofthemanufacturer.Manufacturerhasanincentivetodesigntheproductwiththeuseofscrapinmind.8.3.2TheDisposalDecisionThemarketforoldscrapworksinefficientlybecausetheproductusersdonotbearthefullmarginalsocialcostsofdisposingoftheirproduct.Asaresult,themarketisbiasedawayfromrecyclingoldscrapandtowardtheuseofvirginmaterials.FigureTheDisposalDecisionWhentheprivatemarginalcostofdisposalislowerthanthemarginalsocialcostofdisposal,themarketlevelofrecyclingisinefficient.Onlyifallsocialcostsareincludedinthemarginalcostofdisposalwilltheefficientamountofrecyclingbeattained(Qs).FigureDisposalCostsandtheScrapMarketHowwouldthemarketrespondtoapolicyforcingproductuserstobearthetruemarginaldisposalcost?8.3.3DisposalCostsandtheScrapMarketThemajoreffectwouldbeonthesupplyofmaterialstoberecycled.Consumerswouldnowbeabletoavoiddisposalcostsandmightevenbepaidfordiscardedproducts.Thiswouldcausethediversionofsomematerialstorecyclingcenters,wheretheycouldbereintegratedintothematerialsprocess.FigurePublicPoliciesCanthemisallocationresultingfrominefficientlylowdisposalcostbecorrected?Volumepricingwouldimposedisposalchargesreflectingthetruesocialcostofdisposal.Refundabledepositisdesignedtoinvolvetheinitialchargeandtherefund.Taxsystemcanbeusedtopromoterecyclingbytaxingvirginmaterialsandbysubsidizingrecyclingactivities.8.3.5PollutionDamageOneothersituationinfluencestheuseofrecycledandvirginores.Whenenvironmentaldamageresultsfromextractingandusingvirginmaterialsandnotfromtheuseofrecycledmaterials,themarketallocationwillbebiasedawayfromrecycling.8.3.5PollutionDamageSupposethattheminingindustrywasforcedtobearthecostofthisenvironmentaldamage.Whatdifferencewouldtheinclusionofthiscosthaveonthescrapmarket?8.3.5
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